Tuesday, March 17, 2015

Government Deficits All the Way Up

A well-known scientist (some say it was Bertrand Russell) once gave a public lecture on astronomy. He described how the earth orbits around the sun and how the sun, in turn, orbits around the center of a vast collection of stars called our galaxy. At the end of the lecture, a little old lady at the back of the room got up and said: "What you have told us is rubbish. The world is really a flat plate supported on the back of a giant tortoise." The scientist gave a superior smile before replying, "What is the tortoise standing on?" "You're very clever, young man, very clever," said the old lady. "But it's turtles all the way down!"  —Stephen Hawking, A Brief History of Time
According the the scientist, it may be turtles all the way down, but with fiscal policy, the Congressional Budget Office informs us that for the next ten years, we can expect budget deficits all the way up.

Notice that the expected gap between spending and revenue widens as the years go by. This does not bode well for our economic future. Government spending is a tax of resources taken out of private hands and consumed by government bureaucrats. Such consumption hampers, not facilitates, economic prosperity.

Friday, March 13, 2015

What Did My Parents Ever Do to the Federal Reserve?

That is the question I am left asking after considering various claims about the supposed worrisome consequences of lower prices. David Blanchflower calls price deflation "a major economic pandemic spreading thoughout the world." Justin Wolpers likewise warns us of deflationary expectations. Financial advisor Bert Whitehead asserts, "we really have a danger of deflation world-wide." The solution for those who share the fear is always the same, create more money, stimulate more spending, and higher prices will follow. Bank of England Governor Mark Carney soothes deflation worries, for example, not by acknowledging that falling prices are not socially harmful, but by assuring us that Europe will get back to price inflation soon.

As I said, after all of this chatter, I am left wondering about the ethics of purposely reducing the purchasing power for those who have worked hard and saved all their lives. Higher prices do not, in fact provide prosperity, but instead result in increasing economic hardship for people like my parents. In my latest column for the Grove City College Center for Vision and Values I conclude:
. . .Mom and Dad had the foresight and character to make the sacrifices necessary to stay out of debt. Indeed, they are Paul Krugman’s worst nightmare—a family determined not to live beyond their means. Now retired, like many in their generation they are enjoying life the best they can on an almost fixed income. Because they have no debt, they have been able to live without tremendous economic hardship thus far. The Federal Reserve’s inflationism, however, increasingly makes life for them more difficult as steady price inflation daily chips away at their livelihood. Since 2009, for example, the Consumer Price Index has increased over nine percent. This masks, however, significantly larger price increases for important necessities. Prices of dairy products are up almost 17 percent since 2009. Gasoline prices are up almost 11 percent despite the recent decline. Prices for meat, poultry, fish, and eggs have increased a whopping 26 percent since 2009. Higher overall prices do not help people like my parents at all. They instead act as a thief, snatching wealth away from them in the form of diminished purchasing power. What they long for is to see the value of their savings increase. Far from creating economic hardship for them, lower overall prices would be a boon.

Both sound economics and ethics, therefore, demand that we give up the anti-deflation rhetoric and the inflation it fuels. Charity demands that we cease striking fear into the hearts of the masses, softening them up for ever higher prices. The Federal Reserve should stop punishing people like my parents who have worked hard and played by the rules their whole lives. After all, what did they ever do to Greenspan, Bernanke, and Yellen?

Read the rest here.

Thursday, March 12, 2015

Austrian Economics Research Conference

The AERC began today and so far, so excellent. My colleague, Jeff Herbener and I got here this afternoon just in time to hear David Rapp, Herbener's co-author, deliver their paper and then hear the Henry Hazlitt Lecture by John Tamny. Tamny is the political economy editor at Forbes and editor of RealClearMarkets.com. His lecture, "Government Barriers to Economic Growth: How Policy Error Gave Us the Great Depression, the Financial Crisis, and the Great Recession," was a tremendous, engaging discussion about how the state hinders economic prosperity with applications from the Great Depression, the financial meltdown, and today.

Thursday, February 26, 2015

What Is a Free Market?

That is the question, among others, posed to me by Dan Elmendorf on his radio program A Plain Answer. That program is produced and broadcast on the radio stations in the Redeemer Broadcasting network. In the interview I do discuss the economics and morality of the free market, identify the institutions necessary to support such a market, and the consequences when governments interview via a host of measures. My goal was to introduce listeners with perhaps no formal training in economics to sound analysis. You can see if I succeeded by clicking here.

Saturday, February 21, 2015

Engelhardt on Monetary Independence

This year's Austrian Student Scholars Conference got off to a vigorous start with Lucas Engelhardt's delivery of the Hans Sennholz memorial lecture. Engelhardt drew upon the work of Sennholz himself to make the case for an entire free market in money and banking. He explained what he sees as the problems of our current monetary regime as well as the limitations of various monetary rules that have been proposed by economists such as Milton Friedman, John Taylor, and Scott Sumner.

He then made the case for the benefits and viability of a completely free market for money and banking in which anyone could attempt to produce and circulate money. He explained how such a system could work like the market for any other economic good. He then outlined a few steps that would take us in that direction, such as abolishing legal tender laws, taking government monetary titles off of metallic currency, and allow for freedom in the banking industry. All in all, it was a tremendous beginning to what promises to be an outstanding conference.

Part way through Engelhardt's lecture, it occurred to me that this years ASSC features three generations of Austrian economists. Tonight's Sennholz Lecture was given by a former student of mine. Tomorrow's Ludwig von Mises Memorial Lecture will be delivered by a professor I had in graduate school, Mark Thornton. What a blessing to see how economic truth has been communicated from one generation to the next.

Thursday, February 19, 2015

Austrian Student Scholars Conference 2015

Tomorrow begins this years Austian Student Scholars Conference. We will hear twenty-two papers presented by students from the United States as well as abroad. We will also hear keynote lectures by Dr. Lucas Engelhardt and Dr. Mark Thornton. Admission to all lectures and paper presentations are free and open to the public.  Below is a schedule of events:

Friday, February 20, 2015
5:00-5:30 Registration. HAL Atrium.
5:30-6:30 Dinner. SU Great Room.
7:00-8:00 Hans Sennholz Memorial Lecture. Sticht Lecture Hall.
“A Case for Monetary Independence"                          Dr. Lucas Engelhardt
                                                                                    Assistant Professor of Economics
                                                                                    Kent State University, Stark
Saturday, February 21, 2015
8:30-9:00 Coffee and Pastries. HAL Atrium.
9:00-10:30 Sessions
     Legislating Morality. Chairman: Jeff Herbener. HAL 114.
                Trafficking,” Jon Nelson (Grove City College)
            • “Prohibition,” Brian O’Riordan (Grove City College)
            • “What Has Government Done to Marriage,” Ryan Brown (Grove City College)
                Claire Vetter (Grove City College)
10:45-12:15 Sessions
▪ Liberal Social Order. Chairman: Jeff Herbener. HAL 114.
                Zack Yost (Mercyhurst University)
                Kyle Kreider (Grove City College)
                Bloomington Institutional Analysis,” Chesterton Cobb (Grove City College)
▪ Foundational Issues in Economics. Chairman: Shawn Ritenour. HAL 116.
                Modern Epistemological Theory,” Jake Tinkham (Grove City College)
                Xiaolin Zhang (University of Lethbridge, Canada) 
            • “Science, Probability, and a Theory of Foresight,”
                Davis Bourne (Millsaps College)
            • “Toward a Subjective Theory of Risk,” 
                Daniel Sanchez-Piñol Yulee (King Juan Carlos University, Spain)
12:30-1:30 Lunch. SU Great Room.
2:00-3:30 Sessions
▪ Problems in Macroeconomics. Chairman: Jeff Herbener. HAL 114.
              Karl-Friedrich Israel (University of Angers, France)
              Economic Slump,” Eric Peterman (Grove City College)
• “Capital Mobility and Comparative Advantage,”
             William Casey (Grove City College)
▪ Policy, Ancient and Modern. Chairman: Shawn Ritenour. HAL 116.
                Justin Klazinga (Grove City College)
              Franco Martin Lopez (Universidad Abierta Interamericana, Argentina)
              George Lominadze (Ilia State University, Georgia)
3:45-5:15 Sessions
▪ Great Debates in Economics. Chairman: Jeff Herbener. HAL 114.
                Scott Alford (Grove City College)
              Subjective Theories of Value,” Thomas Cottone (Florida Atlantic University)
                in the Marketplace,” Jared Billings (Grove City College)
▪ Money and Banking. Chairman: Shawn Ritenour. HAL 116.
            • “The Backing of the Currency and Economic Stability,”
                Zack Morrow (Wofford College)
• “Detangling the Fractional Reserve Debate,” Dorian Rahamin (Vienna, Va.)
• “The Euro, Pros and Cons,” Evan Burns (Grove City College)
5:30-6:30 Dinner. SU Great Room.
6:45-7:00 Awarding of the Richard E. Fox Prizes for Best Papers. Sticht Lecture Hall.
7:00-8:00 Ludwig von Mises Memorial Lecture. Sticht Lecture Hall.
“What a Real Free Market in Drugs Looks Like”                           Dr. Mark Thornton

Wednesday, January 14, 2015

Reality Trumps Federal Reserve Rhetoric

An excerpt from my chapter, "The Fed: Reality Trumps Rhetoric" appears today as a daily article at Mises.org. I was honored to be asked to contribute the chapter to a new book, The Fed at One Hundred that provides a critical assessment of our nation's central money making machine. Edited by David Howden and Joseph T. Salerno, the book is an excellent work providing a scholarly evaluation of the Federal Reserve. In my chapter I explore main themes in the rhetoric used by Fed officials, drawing upon speeches from Federal Reserve Chairmen and official Fed publications since its inception. I then hold this rhetoric up to the light of the monetary and economic history of the United States and show that despite claims to be the savior of the global economy,
The history of the Fed has been one of monetary inflation, higher overall prices, diminished purchasing power, economic depressions, and lost decades. In 1913 the state sowed the inflationist wind and for a hundred years we have been reaping the economic whirlwind.